G Chandrashekhar

Palm oil likely to test supports, rise

Gnanasekaar T | Updated on January 12, 2018

BL07_COM_PALM_OIL

Malaysian palm oil futures on the Bursa Malaysia Derivatives were higher on Monday, despite being undermined by a stronger ringgit and weak soya oil prices. Expectations of a rise in export demand amid poor production continues to underpin prices.

CPO active month April futures are still stuck in a range, waiting for bullish triggers to break out on the upside. As mentioned earlier, in the medium-term picture, there is scope for this uptrend to turn into a very strong one even targeting MYR 3,200/tonne levels, a potential medium-term target area.

No change in view

After hitting 3,200 levels, prices have been moving in a sideways pattern for more than a month now.

As mentioned in the previous update, prices could edge lower now in a correction and such corrections are healthy for the uptrend to sustain by squeezing out weak longs. The present sideways move has been accompanied by good volumes at the lower end of the range, suggesting a strong up move once it breaks out of the consolidation in the MYR 3,000-3,200/tonne zone.

Potential targets are around 3,350-3,450 levels in the near-term. Strong supports are seen at 3,045-50 followed by 3,005-15 levels, being a rising trend line support point.

Only an unexpected decline below MYR 3,005 could lead to a stronger correction. Such a fall could see stronger supports around 2,960-75 levels being an important trend line support level.

As explained before, a one-sided move without price corrections could be vulnerable for a sharp decline subsequently. But, the way prices have been building and volumes rising at the lower end of the range, our favoured view expects prices to break higher above MYR 3,200 in the coming sessions and aim for the targets mentioned above.

Wave counts: A possible new impulse looks to have started again. One of our targets at 1,850 was met. The rally from there looks very impressive. As mentioned earlier, we expected prices to push higher towards MYR 2,645/tonne initially and then correct lower towards 2,460 or even lower to 2,225, and then subsequently rise towards a medium- to long-term target at 3,600, which could bring this current impulse to an end.

Our medium- to long-term expectation is slowly materialising and the impulse wave is under way.

We have maintained for several weeks now that any dips could prove to be opportunity to participate in the upcoming uptrend. However, the picture could turn weak if prices unexpectedly went below MYR 2,800/tonne levels now.

RSI is in the neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still above the zero line of the indicator hinting at a bullish reversal in trend.

Only a crossover again below the zero line could hint at weakness again.

Therefore, look for palm oil futures to test supports and rise. Supports are at MYR 3,045, 3,015 and 2,970. Resistances are at MYR 3,154, 3,210 and 3,300.

The writer is the Director of Commtrendz Research. There is risk of loss in trading.

Published on February 06, 2017

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